Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Pick, chief executive officer of Morgan Stanley, Marc Rowan, chief executive officer of Apollo Global Management LLC, and David Solomon , chief executive officer of Goldman Sachs Group Inc., during the Investment Summit of Global Financial Leaders in Hong Kong, China, on Tuesday, November 19, 2024.
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US investment banks just posted a record quarter, helped by a surge in trading activity around the US election and an increase in investment banking business flow.
Traders at JPMorgan Chasefor example, they never had better quarters fourth after seeing revenue rise 21% to $7 billion, while Goldman Sachs’ the stock business generated $13.4 billion for the full year — also a record.
For Wall Street, it was a welcome return to the environment traders and bankers craved after a quiet period when the Federal Reserve raising rates while struggling with inflation. Buoyed by the Fed in easing mode and the election of Donald Trump in November, banks including JPMorgan, Goldman and Morgan Stanley easily upgradeable expectations for a quarter.
But the great machinery that drives Wall Street is only heating up. That’s because, deterred by regulatory uncertainty and higher borrowing costs, American corporations have largely sat on the sidelines in recent years when it came to buying competitors or selling themselves.
That will soon change, according to Morgan Stanley CEO Ted Pick. Buoyed by confidence in the business environment, including hopes of lower corporate taxes and easier merger approvals, banks are seeing a growing backlog of merger deals, according to Pick and Goldman CEO David Solomon.
Morgan Stanley’s string of deals is “the strongest it’s been in 5 to 10 years, maybe even longer,” Pick said Thursday.
Capital market activity, including debt and equity issuance, has already started to recover last year, rising 25% from lows in 2023, according to Dealogic figures. But without normal levels of merger activity, the entire Wall Street ecosystem is missing a key driver of activity.
Multibillion-dollar acquisitions are at the “top of the waterfall” for investment banks like Morgan Stanley, Pick explained, because they are high-margin transactions that “have a multiplier effect throughout the organization.”
This is because they create the need for other types of transactions, such as huge loans, credit facilities or stock issuances, while generating millions of dollars in executive wealth to be managed professionally.
“The last part is what we’ve been waiting for, which is the M&A tickets,” Pick said, referring to the contracts that govern merger deals. “We’re excited to push it to the rest of the investment bank.”
Another driver of value creation for Wall Street that has been slow in recent years is the IPO market – which will also take off, Solomon told audience of technology investors and employees on Wednesday.
“There has been a significant shift in CEO confidence,” Solomon said earlier in the day. “There is a significant backlog from sponsors and an overall increased appetite for dealmaking supported by an improved regulatory backdrop.”
After a few down years, it should be a profitable time for Wall Street traders and traders.
